Sallie Mae (SLM) Q2 Earnings Beat Estimates As Revenues Rise
Zacks Investment Research | Jul 25, 2019 08:33AM ET
Sallie Mae (NASDAQ:SLM) reported second-quarter 2019 core earnings of 31 cents per share, surpassing the Zacks Consensus Estimate of 30 cents. Moreover, the figure jumped 24% from the prior-year quarter.
Increase in net interest income and elevated non-interest income were tailwinds. Deposits grew considerably and capital position was strong. However, these positives were offset by elevated expenses and poor credit quality.
The company’s GAAP net income attributable to common stock came in at $146 million or 34 cents per share compared with $106 million or 24 cents per share reported a year ago.
Rise in Net Interest Income & Other Income Offsets Higher Costs
Net interest income for the second quarter came in at $397 million, up 16.4% year over year. This improvement was mainly driven by higher interest income. Net interest margin contracted 26 basis points (bps) to 5.88%.
The company reported non-interest income of $19 million, up significantly from the prior-year quarter. This upside stemmed from higher gains on derivatives and hedging activities, partly offset by lower other income.
The company’s non-interest expenses jumped 2.6% year over year to $138.8 million. The upsurge mainly resulted from increased compensation and benefits expenses.
Efficiency ratio, on a non-GAAP basis, decreased to 34.9% from 38.3%. Generally, a lower ratio indicates improved profitability.
Credit Quality Worsens
Provision for loan losses was $93 million, up 47.6% from $63 million witnessed in the prior-year quarter.
Delinquencies as a percentage of private education loans in repayment were 2.7%, up 5 bps.
Deposits Grow, Loans Decline
As of Jun 30, 2019, deposits of Sallie Mae Bank were $21.2 billion, up from $19.7 billion as of Mar 31, 2019. Increase in retail and other, along with brokered deposits, contributed to this upside.
Private education loan portfolio was $21.4 billion, down nearly 1% sequentially. Average yield on the loan portfolio was 9.39%, down 11 bps.
Strong Capital Position & Capital Deployment Update
As of Jun 30, 2019, Sallie Mae Bank’s common equity Tier 1 capital was 11.9%, exceeding the “well capitalized” industry benchmark in regulatory requirements.
The company repurchased $60 million of common stock under share repurchase program at an average price of $10.04.
2019 Outlook
The company estimates core earnings per share in the range of $1.21 to $1.23 for this year down from $1.21-$1.23 previously expected.
Private education loan originations are projected to be $5.7 billion. The company’s full-year non-GAAP operating efficiency ratio is expected in the 35-36% band.
Our Viewpoint
Results of Sallie Mae highlight continued focus on increasing private education loan assets, maintaining a solid capital position by introducing multiple complementary products and improving efficiency. Also, significant rise in fee income is a tailwind.
We believe improving economic conditions will further assist Sallie Mae in maintaining its leading position in the student lending market. Additionally, its focus on solidifying presence in the consumer banking business space bodes well. However, worsening of credit quality and escalating expenses keep us apprehensive.
SLM Corporation Price, Consensus and EPS Surprise
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.